Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- China Oilfield Services Ltd (CHOLF, Financial) achieved a significant growth rate of 20% in the well services segment, with operating revenue increasing from 10% to 80%.
- The company has successfully diversified its markets and clients, increasing its foreign market share from 16% in 2022 to 25% in 2024.
- CHOLF has implemented a comprehensive cost control system, focusing on controlling costs at the smallest unit level, which has contributed to improved profitability.
- The company has secured new projects for two of its rigs, the Seeker and Shanghai, with increased rates.
- CHOLF has a strong cash flow and is considering optimizing its debt ratio and increasing the payout ratio of dividends in the future.
Negative Points
- The income tax for the first half of 2024 was significantly high at RMB700 million, compared to RMB406 million in the previous year.
- The company faced challenges with projects in Saudi Arabia, leading to suspended operations for some rigs and impacting income tax.
- The profit rate of the overseas market is not as good as that in the domestic market, primarily due to lower acceptance and recognition of new technologies by international clients.
- The subcontracting rate in areas such as directional drilling remains high, with a rate of about 40%, posing challenges in meeting market demands with current capacity.
- The day rates for jack-up rigs and semi-submersible rigs have decreased, indicating potential pricing pressures in the market.
Q & A Highlights
Q: The income tax is very high in the first two quarters. What's your take on the income tax in the second half of this year?
A: Our income tax in the first half of this year was around RMB700 million, up from RMB406 million last year. This increase is due to overdue tax payments in Mexico and project suspensions in Saudi Arabia. We expect the income tax to return to normal levels in the second half of the year. (Unidentified Company Representative_2)
Q: How did the company achieve a 20% growth rate in the well services segment, and what's your outlook for the second half of the year?
A: The growth is due to increased workload in both domestic and overseas markets, cost control measures, and emphasis on quality and safety operations. We expect continued growth in this segment, driven by market expansion and technological advancements. (Unidentified Company Representative_2)
Q: How can the management find new opportunities for rigs given the decreased utilization rate of jack-up rigs?
A: Despite challenges in Saudi Arabia, two rigs have secured new projects. We anticipate increased demand in Southeast Asia, the Middle East, and Europe. We are focusing on internationalization and expect more opportunities in these regions. (Unidentified Company Representative_1)
Q: What are the company's plans for CapEx and capital allocation in the medium and long term?
A: We have paused large investments, with RMB9 billion invested last year and RMB7 billion this year. Future investments will focus on R&D and transforming intangible assets into actual products. We aim to optimize the debt ratio and consider increasing the payout ratio of dividends. (Unidentified Company Representative_1)
Q: Why is the profit rate of the overseas market lower than that of the domestic market, and will it catch up?
A: The lower profitability is due to initial stages of internationalization, price sensitivity of customers, and brand reputation. As our new products and technologies gain acceptance, we expect profitability to improve. (Unidentified Company Representative_1 and Unidentified Company Representative_2)
Q: What is the company's strategy to reduce subcontracting costs in the well services segment?
A: We aim to develop our own capabilities and seek partnerships to meet market demands. This approach will help us manage the high subcontracting rate, especially in areas like directional drilling. (Unidentified Company Representative_1)
Q: Why did the day rate of rigs decrease, and what's your outlook for future day rates?
A: The decrease is due to a shift in demand towards rigs that can operate in high temperature, high pressure, and deepwater environments. We expect future demand for advanced technology rigs to increase, which will positively impact day rates. (Unidentified Company Representative_1)
Q: Will the company consider paying out more dividends or reducing the debt ratio in the medium and long term?
A: We have a three-year plan for debt optimization, focusing on balancing long-term and short-term debts, and fixed and floating rate debts. After optimizing the debt ratio, we will consider increasing the payout ratio of dividends. (Unidentified Company Representative_1)
Q: How does the company plan to improve the brand reputation and profitability of the well services segment in the international market?
A: We are focusing on improving our performance and brand reputation in the international market. As our advanced technologies gain recognition, we expect to charge higher prices and improve profitability. (Unidentified Company Representative_2)
Q: What measures are being taken to enhance the company's NPT management and cost control capabilities?
A: We have implemented comprehensive cost control measures and built a scientific and sustainable cost control system. We also emphasize quality and safety operations, with daily reports on NPT management to enhance our capabilities. (Unidentified Company Representative_2)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
